<FONT COLOR=BLUE>MARKET SNAPSHOT--Profit jitters shoot down stocks
Dell warning hobbles techs
By Julie Rannazzisi, CBS.MarketWatch.com
Last Update: 4:16 PM ET Oct 5, 2000
NEW YORK (CBS.MW) - The major averages couldn't shake off their blues Thursday as Dell Computer's profit warning weighed on sentiment throughout the trading day.
The litany of high-profile tech warnings over the past couple of weeks - with Dell Computer, Apple and Intel all announcing shortfalls -- has hammered the big names that investors looked to for leadership.
With third-quarter earnings just around the quarter, observers say the companies that haven't warned need to sharply exceed expectations and provide a rosy outlook for the coming quarters to regain at least some of investors' confidence.
"There's lots of churning," said John Zaro, managing member at Bourgeon Capital Management, referring to the sector rotation out of growth and into value stocks that has been taking place.
He believes the market won't be able to produce a sustainable advance until a clear bottom is in place. The Nasdaq, he said, needs to test its old April bottom.
"You need a more broad-based washout, where the Broadcoms, Sun Micros and EMCs [out there] get hit," Zaro continued. These stocks, in fact, haven't really come off their perch and carry even loftier valuations compared to the rest of the market.
Not surprisingly, chip and hardware stocks saw the headiest losses within the technology sector. In the broader market, retail, utility, paper and oil shares sagged. The latter extended losses as November crude dropped 90 cents to $30.53 after falling as much as $1.26 to seven-week lows in intra-day dealings. A bright spot for the market were drug, airline, consumer product and financial issues.
The Dow Jones Industrials Average ($DJ) slipped 60 points, or 0.6 percent, to 10,724.
The Dow's laggards included Hewlett-Packard, International Paper, General Motors, AT&T, Home Depot and Honeywell. The most solid gains were seen in shares of Coca-Cola, Johnson & Johnson, Procter & Gamble, SBC Communications and Citigroup.
In earnings news, Dow-component Alcoa (AA) posted third-quarter earnings of 42 cents a share, matching the lowered First Call estimate. Alcoa warned of lower earnings on Sept. 18 -- when First Call estimates stood at 49 cents a share - due to higher energy costs and softening in the transportation, building, construction and distribution markets. The stock eased 6 cents to $27.19 but has been on quite a run in recent sessions, surging 10 percent on Tuesday.
The Nasdaq Composite ($COMPQ) slipped 51 points, or 1.5 percent, to 3,471 while the Nasdaq 100 Index ($NDX) lost 29 points, or 0.9 percent, to 3,423.
"The market is still in an overall correction, with the formerly hot tech stocks falling like dominoes on a daily basis. The correction will likely continue until the Nasdaq also has a wash out day," said Robert Dickey, chief technical strategist at Dain Rauscher Wessles.
"The odds of the current correction developing into a longer-lasting bear market are lower, as the economy does not appear to be headed into a recession -- which is often associated with longer-term market problems," Dickey continued.
The Standard & Poor's 500 Index ($SPX) added 0.1 percent while the Russell 2000 Index ($RUT) of small-capitalization stocks gave up 0.9 percent.
Volume came in at 1.18 billion on the NYSE and at 1.84 billion on the Nasdaq Stock Market. Market breadth was negative, with losers outpacing winners by 16 to 12 on the NYSE and by 23 to 16 on the Nasdaq.
Sector movers
Keeping the computer hardware sector in a rut were shares of Dell Computer (DELL), which fell $2.25, or about 8 percent, to $25.94. After the close, Dell warned that third-quarter revenue would fall 3 percent below expectations due to soggy European demand and weaker-than-expected global sales to small-business customers. The news comes a week after Apple Computer (AAPL) warned of softer sales. The stock lost $1.06 to $22.56 and the Goldman Sachs Hardware Index ($GHA) slid 4.4 percent. Also hemorrhaging were shares of Hewlett-Packard (HWP), down 7 percent to $89, and Compaq Computer (CPQ), off 8.7 percent to $26.32.
While Dell said it's still on track to meet third-quarter estimates, it believes fourth-quarter estimates could come in one to two cents below target. First Call expects a profit of 25 cents a share for the third quarter and 28 cents in the fourth quarter. The stock saw its rating lowered by SG Cowen to a "buy" from a "strong buy."
In the chip arena, Micron Technology lost $4.56, or 10 percent, to $42.38 after running up substantially on Wednesday -- mirroring declines in the chip sector even after reporting better-than-expected results. After the close Wednesday, the company (MU) posted a fourth-quarter profit from operations of $1.16 a share, handily surpassing the First Call estimate of 96 cents a share. Intel (INTC) turned lower, giving up feeble gains posted at the open, shaving 25 cents to $41.75. The Philly Semiconductor Index ($SOX) fell 3.6 percent.
Merrill Lynch believes it'll be a sloppy earnings season for chip stocks due to problems in the PC and wireless markets, which will effectively cap the upside and provided a cautious outlook for the fourth quarter. But Merrill said in a note to clients that it expects to see few outright misses and predicts revenue growth of 32 percent for the 25 companies it tracks in the group.
"All of our work indicates that the semiconductor business' current difficulties are not the result of over investment, but rather disappointing demand," Merrill continued.
Internet stocks were held down by steep losses in shares of Priceline.com (PCLN) after the online retailer said two of its licensees -- WebHouse Club, a seller of groceries, and used merchandise seller Perfect Yardsale -- would close in the coming months. The news comes about a week after Priceline warned that third-quarter revenue would come in below expectations. The stock fell 33 percent, or $3.09 to $$6.28.
The B2B sector was also badly bruised, led by Internet Capital Group (ICGE), which saw 18 percent of its value evaporate. Merrill's B2B Holdrs (BHH) slid 8.9 percent.
Shares of consumer product stocks flexed their muscles following a slew of upgrades from Merrill Lynch. The brokerage upped its view on Colgate-Palmolive (CL), Procter & Gamble (PG), Gillette (G) and Clorox (CLX), among others, to a "near-term accumulate" from a "near-term neutral." Merrill said the battered group is better positioned to benefit from company-specific initiatives. Clorox was the biggest gainer with an 8.6-percent advance to $42.81. See Rating Revisions. The Morgan Stanley Consumer Index ($CMR) gained 1.6 percent.
Retail stocks lost ground as a warning from J.C. Penney discouraged some investors. The S&P Retail Index ($RLX) lost 1.2 after rising 2.1 percent on Wednesday.
J.C. Penney (JCP) said Thursday that it won't meet the Wall Street consensus estimate of for third-quarter earnings-per-share of 10 cents due to the challenging retail environment and continuing disappointing results in its Eckerd drugstore operations. J.C. Penney now expects to report earnings-per-share ranging from a small profit to a loss for the third quarter. The stock fell 10 percent to $10.19.
Some retail stocks put on impressive performances, however. Shares of Gap (GPS), for example, climbed 9 percent to $21.69. The company reported late Wednesday that September sales fell by a larger-than-expected 8 percent.
Kmart (KM), meanwhile, reported a below-plan 2.4-percent rise in September same-store sales but saw its shares rise 1 percent to $6 and Talbots (TLB) swelled 8 percent to $71.19 after increasing its third-quarter earnings-per-share outlook to $1.00 to $1.02 versus the First Call estimate of 85 cents a share.
Bond focus
Treasury prices traded mixed, with the long bond witnessing some buying interest while all other issues wallowed in the minus column.
The 10-year Treasury note added 1/4 to yield ($TNX) 5.86 percent while the 30-year bond rose 24/32 to yield ($TYX) 5.90 percent.
On the economic front, weekly initial claims rose 10,000 to 299,00 in the latest week. View Economic Preview, economic calendar and forecasts and historical economic data.
In the currency arena, dollar/yen slipped 0.2 percent at 109.09 yen while euro/dollar shed 0.6 percent to 0.8686. The euro briefly gained some ground following the European Central Bank's decision to raise short-term rates by 25 basis points at its policy-setting meeting Thursday -- but saw those gains vanish quickly. Read the full story. The ECB, Federal Reserve and Bank of Japan intervened jointly two weeks ago to support the fledgling currency, effectively creating some stability in foreign exchange markets with traders unwilling to take on positions for fear of further intervention.
Julie Rannazzisi is markets editor for CBS.MarketWatch.com. |
